JP Morgan Chase & Co. believes the current bear market is scaring investors away from bitcoin, just to add to the never-ending rumors of its demise. But as retail and institutional investors seem to be looking for other options, are classic analysts telling the whole story?
The Pessimist’s Case for Dismissing Bitcoin
A group of JP Morgan Chase analysts believe the prolonged bear market of 2018 is scaring institutional investors away from Bitcoin.
Global markets strategist Nikolaos Panigirtzoglou has declared in recently published research notes that financial institutions’ interest in bitcoin trading “appears to be fading” as key metrics like the index of open interest in bitcoin futures, and average exchange volumes “have downshifted dramatically.”
Furthermore, JP Morgan’s report says median bitcoin transaction sizes are down to $160 from the highs of around $5,000 seen just a year ago, adding that the more widely used contracts on the Chicago Mercantile Exchange are very close to “the bottom of 2018’s range” according to data from the Commodity Futures Trading Commission.
Panigirtzoglou and his team attribute these downward trends to investors taking their money away from the cryptocurrency market but is that really the case?
Are the Pros Really Ditching Bitcoin?
Even though traditional metrics seem to support Panigirtzoglou’s position, recent data provided by other sources shows that the trends that JP Morgan regards as evidence of investors’ interest dwindling may actually be caused by investors taking their money elsewhere.
Jeffrey Sprecher CEO of Intercontinental Exchange and chairman of the New York Stock Exchange seems to disagree with Panigirtzoglou’s view. Sprecher recently said that despite the steep plunge bitcoin prices have taken in 2018, the answer to the question: “Will digital assets survive?” is “unequivocally yes”, adding:
No one has dropped out of crypto. [People may] have walked out but no one is walking away
Bloomberg Intelligence analyst Mike McGlone believes the bear market is actually distorting perceptions of what’s really happening. McGlone thinks that despite current prices, the total number of combined contracts from the two venues (CBOE and CME) “is set to end the year at an all-time high,” which represents clear evidence that interest in these assets is on the rise. McGlone also added he thinks the market is “extremely oversold” which should hints at sharp rallies in the future.
OTC Trading Is Gaining Ground
Traditional metrics do not provide the full picture when gauging bitcoin’s future. Over-the-counter (OTC) transactions (performed outside of exchanges) are now believed to be capturing increasing volume. Binance CEO Changpeng Zhao said in October:
What I’ve heard is the OTC market is at least as large as the live recorded volumes [on exchanges]. So that is at least 50 percent of volumes that is not being reported on Coinmarketcap.
According to a recent report by Diar, institutional money is steadily flowing into BTC as traders are moving away from exchanges and starting to take advantage of the OTC markets’ greater liquidity. Further, Diar’s data shows that even though OTC markets are open for only 31 percent of yearly tradable hours and trading volumes are still relatively small, there is a clear trend showing that OTC trading is on the rise. The report reads:
With no time stop on trading, institutions and big money would require access around the clock from fears of a rude awakening in a market that remains highly volatile despite that decreasing to new lows this year.
Grayscale Investment Trust published data earlier this year showing that the bearish trends observed in 2018 have discouraged retail investors and speculators but have had the contrary effect on institutions, whose involvement in the market is “counter-intuitively” accelerating to levels never seen before by the Trust.
Peer to Peer Transactions Are Also on the Rise
As with OTC transactions, peer-to-peer trading does not cause any price discovery, even though P2P platforms are moving millions of dollars worth of bitcoin around the world.
Trading volumes on Localbitcoins are anything but bearish, with many countries experiencing massive increases in P2P trading. South American nations are leading the way with countries like Peru, Colombia and Argentina doubling or even tripling volumes since 2018’s crypto price crash began. In particular, economically battered Venezuela has seen an immense rise in Localbitcoins trading that is showing no signs of abating.
These trends suggest that JP Morgan Chase analysts may have misread the market and written it off too hastily. As P2P and OTC markets show, there’s plenty of life in Bitcoin yet. Coupled with the amount of infrastructure work being expended on improving wallets, exchanges and custodial solutions and it’s clear that the groundwork is being laid for the next wave of Bitcoin investors, both retail and institutional.